Correlation Between Avantis Equity and Vanguard

Can any of the company-specific risk be diversified away by investing in both Avantis Equity and Vanguard at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Avantis Equity and Vanguard into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Avantis Equity ETF and Vanguard SP 500, you can compare the effects of market volatilities on Avantis Equity and Vanguard and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Avantis Equity with a short position of Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avantis Equity and Vanguard.

Diversification Opportunities for Avantis Equity and Vanguard

0.99

Correlation Coefficient

Avantis Equity  Vanguard

No risk reduction

The 3 months correlation between Avantis and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Avantis Equity ETF and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 and Avantis Equity is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Avantis Equity ETF are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of Avantis Equity i.e., Avantis Equity and Vanguard go up and down completely randomly.

Pair Corralation between Avantis Equity and Vanguard

Given the investment horizon of 90 days Avantis Equity ETF is expected to generate 1.0 times more return on investment than Vanguard. However, Avantis Equity ETF is 1.0 times less risky than Vanguard. It trades about -0.05 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about -0.05 per unit of risk. If you would invest  9,677  in Avantis Equity ETF on December 28, 2024 and sell it today you would lose (299.00) from holding Avantis Equity ETF or give up 3.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Avantis Equity ETF  vs.  Vanguard SP 500

Avantis Equity ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avantis Equity ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Avantis Equity is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Avantis Equity and Vanguard

The main advantage of trading using opposite Avantis Equity and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avantis Equity position performs unexpectedly, Vanguard can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Vanguard will offset losses from the drop in Vanguard's long position.

The idea behind Avantis Equity ETF and Vanguard SP 500 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.